Page 178 - DMGT407Corporate and Business Laws

Unit 6: Partnership Act and Limited Liability Act

property of the firm applied in payment of debts of the firm and (b) the surplus distributed Notes
amongst the partners or their representatives according to their respective rights. The
right of a partner is often called a partner’s lien. The word ‘lien’ as used here is not to be
interpreted in its technical sense, it is a convenient mode of referring to the right.
(ii) Rights to have the debts of the firm settled out of the property of the firm: Section 49
provides that where there are joint debts due from the firm and also separate debts due
from any partner, the property of the firm shall be applied in the first instance in payment
of the debts of the firm and if there is any surplus, then the share of each partner shall be
applied first in the payment of his separate debts and the surplus if any in the payment of
debts of the firm.
(iii) Right to personal profits earned after dissolution: Section 50 provides that if any partner
earns any profit from any transaction connected with the firm after its dissolution, he
must share it with the other partners and the legal representatives of the deceased partner.
(iv) Rights to return of premium on premature dissolution: Section 51 provides that where a
partner has paid a premium on entering into partnership for a fixed term and the firm is
dissolved before the expiration of that term, he shall be entitled to repayment of the
premium or of such part thereof as may be reasonable (regard being had to the terms of
and to the length of time during which he was a partner) unless the dissolution is (i) due
to the death of a partner, or (ii) his own misconduct, or (iii) in pursuance of an agreement
containing no provision for the return of the premium or any part of it.

(v) Right where partnership contract is rescinded for fraud or misrepresentation: Section 52
provides that in case a partner was induced to join the firm by the fraud of any partner, he
may, on discovering the fraud, rescind the agreement and have refund not only of the
premium but also of the capital paid. His rights are: (i) He has a lien on the surplus assets
after the debts of the firm have been paid, for any sum paid by him to purchase a share in
the firm and for any capital contributed by him. (ii) He is entitled to rank as a creditor of
the firm in respect of any payment made by him towards the debts of the firm. (iii) He has
a right to be indemnified by the partner guilty of fraud or misrepresentation against all
the debts of the firm.
(vi) Rights to restrain partners from use of firm property: Section 53 provide that after a firm
is dissolved, every partner or his representative may restrain any other partner or his
representatives from carrying on a similar business in the firm’s name or from using any
of the property of the firm for his own benefit, until the affairs of the firm have been
completely wound up. This right is subject to; (a) a contract to the contrary between the
partners and (b) the right of a partner who has purchased firm’s goodwill.

Liabilities of a Partner on Dissolution

(i) Liability for acts of partners done after dissolution and public notice. The first step in the
process of dissolution is to give a public notice of dissolution. If it is not done then the
partners continue to be liable to third parties for any act done by any of them which would
have been an act of the firm if done before the dissolution. This principle, however does
not apply in certain cases. In other words, the liability does not attach for the acts done
after the dissolution of firm and no notice of dissolution be given. These are: (a) the estate
of a deceased partner, (b) the insolvent partner and (c) the sleeping or dormant partner
who retires (s.53).
(ii) Continuing authority of partners for purposes of winding up. The commencement of
dissolution does not at once terminate the authority of the partner. Section 47 provides
that after the dissolution of a firm, the authority of each partner to bind the firm and the

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